As Newer & Higher Thinking Appears

Newer Ways of Cultivating Better Relationships with Businesses and Business Families

Has the time come for relationship pricing?

Old vs New Methods

For decades and longer periods, firms have embraced traditional ‘product pricing’ models. This model worked for traditional publicly traded stocks and bond investments and traditional inherited wealth clients accepted these for their trusts.

Yet, as privately owned business grew in dominance, and as business families confronted the onset of trusts, they held vastly different views from their predecessors, about returns on investment from publicly traded stocks. Thus began the tendency for owners to want to hold onto their business. Yet it was often held in custody accounts. When its stock landed in family trusts, it was left unmanaged and unattended to. By the time the trust legally ended, the business was worth significantly less when it started, and revenues had dwindled.

In the first decade of the 21st century, many inherited wealthy business families fled to family offices. It was to improve investment returns through private equity and other business holdings and to maintain control over the business asset. Since that time, many banks find they have business owners, a business, and a business family as their clients. Yet they remain unprepared for these clients compared to the good old days. To cope with this, many firms resorted to providing advisory services to their clients at the same time as the complexity of estate plans and wealth transfer plans began to accelerate.

A New Method

Business clients and business families are starved for guidance and support around these plans. Moreover, they wish their business assets could be managed. Traditional pricing plans, however, don’t accommodate this asset.

The time has come to explore the flexibility of a life cycle approach to relationship pricing compared to the self-limiting, assets under management (AUM) approach.

Banking organizations find they have growing numbers of businesses in a business group. As time passes, this relationship becomes both the business and the business family, and their needs grow as their life cycle progresses.

EXAMPLE

A leadership transition or owner exit from the business, prompts the relationship to begin to expand into the business as a desired holding, more complex investments, trusts and a family office or private family trust company. These assets and services often fall under far flung and/or rigid lines of products.

What happens when skilled professionals or non-bank skilled professionals enter the picture and their talents are services, not products?

There are two elements to consider:

Pricing these as a relationship is often more profitable than a traditional product line approach. Secondly relationship pricing is all inclusive of advice, non-AUM based services, internal employees and external services and skilled professionals. As the occasions arise of one professional being allocated to one group, but often with commitments to service two or more other groups, relationship pricing eases the transition back and forth, it is important to realize it is always within a given client relationship.

Thus, relationship codes (numbers) are becoming more necessary. Similarly, every product a client or family engages in has an account number.

The time has come to begin to modernize the pricing models used because your clients have a life cycle which means nothing is quite so constant as CHANGE!